China promises further VAT cut even as tax revenues dive

China’s tax revenues fell by 918.6 billion yuan ($145.5 billion) last year as a result of changes to the tax structure, Minister of Finance Liu Kun said on March 25.

A cornerstone of the reforms was the replacement of the business tax (BT) with a value-added tax (VAT) in 2016.

Liu said that major sectors like manufacturing and transportation can expect further VAT cuts this year.

As part of the efforts to reform China’s State-centric fiscal system, VAT was first introduced in 2012 in Shanghai, China’s financial hub, in selected industries. It was expanded to eight other regions the same year and eventually rolled out nationwide in May 2016.

The latest cuts are an extension of tax reforms since 2013 when the government slashed more than 3 trillion yuan in taxes and fees on companies, a process Premier Li Keqiang said was vital to improve the country’s competitiveness and protect entrepreneurship.

“China aims at setting up optimized taxation system and structure in accordance with international tax reform,” Liu said at the China Development Forum.

China’s tax reforms have given the country more global competitiveness. Based on OECD’s VAT and GST guidance, tax reforms have been “instrumental in supporting economic activity, boosting growth and strengthening China’s international competitiveness, particularly in the services sector,” Angel Gurria, Secretary-General of OECD, said at the forum.

The annual forum, which kicked off on March 25 with the theme “China in the New Era,” has attracted over 30 globally renowned scholars, including seven Nobel laureates and more than 80 executives of Fortune 500 Firms.